Bonding enables users to get discounted OLAS and the protocol to increase capital in line with code
Olas Network offers a unique bonding mechanism that, alongside developer rewards, is designed to create an economic whirlpool, autonomously fusing capital and code.
For users, it simply allows buying OLAS, the protocol's token, at a discount by trading Liquidity Pool (LP) tokens.
For the protocol, this novel bonding mechanism provides a way to generate liquidity and earnings via Protocol-owned Liquidity. Uniquely, incentives increase as useful code increases. This accelerates the Olas Network's flywheel, designed to suck in capital and code.
Bonding is a concept in decentralized finance where LP tokens are exchanged for discounted protocol tokens (in this case, OLAS). Unlike the traditional Pool2 incentives, this process helps the protocol generate its own liquidity rather than borrowing it. For Olas network, this ensures a more lasting liquidity supply as well as earnings from trading fees. For users, it's a chance to get more OLAS for less.
While bonding models are often associated with hyper-inflation, Olas tokenomics moderates its inflation through a novel control mechanism based on the utility of the code deployed in the ecosystem. If there's a lot of valuable code, it signals a need for more liquidity. As a result, incentives to bond increase. On the other hand, less valuable code leads to fewer incentives. This approach aligns all participants with the goal of fusing capital with valuable code and growing each in proportion to the other. For more details on how useful code is measured, please see the tokenomics paper.
The Bonding Process
Bonding starts by adding liquidity to the OLAS-ETH Uniswap pool, and then trading the LP tokens for discounted OLAS on the bonding page of the Olas tokenomics website. After a vesting period (7 days), the user can claim the full OLAS amount.
When deciding to bond, you can see the projected Annual Percentage Yield (APY) in the user interface. This calculation takes into account inflation, the current price of the tokens, and indicators of code usefulness, among other variables. Again, bonding is designed so that when more useful code is being contributed, more incentives will be deployed, resulting in higher APYs. The reverse is applicable when there is less valuable code being contributed to the protocol. Therefore, bonding profitability is variable, and sometimes it may not be possible to bond if the protocol's available capital is more than the estimated code usefulness.
Remember, once you bond, you can't undo it.
Olas' Protocol-owned Liquidity bonding mechanism is a unique way for the protocol to manage its capital, scaling it in proportion to the network's value. It encourages OLAS holders to contribute to the Olas network, helping the protocol allocate resources effectively and ensuring growth aligns with the ecosystem's development. By understanding and participating in bonding, OLAS holders can significantly contribute to the network's success.
For more details on bonding, see the "Bonding" section of the whitepaper.
For more on developer rewards, see here.
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